Phil Birnbaum of Sabermetric Research has a lengthy post about the relative value of free agents. There’s a lot of economics involved, but it’s worth the (attempted) read. Econ 101 might be a prereq:

In mechanics, and baseball players, and real life, when one party values something higher than the next party, that does NOT mean they pay more for it. It means they buy a higher quantity. If I love Taco Bell and you only like it, it doesn’t mean I wind up paying $3 for a taco while you pay $1. It means that we both pay $1, but I wind up going more often.

Similarly, the bigger garage doesn’t pay more for mechanics – it just hires more of them. And the New York Yankees don’t pay more for free agents – they just sign more of them.

Birnbaum is arguing against JC Bradbury‘s model for valuing free agents. The quoted part above doesn’t have much to do with that; I just used it because it wasn’t over my head. I’ll be curious to see what Bradbury has to say in response.

Maybe the better model is this: teams are given a budget and will spend to that budget. There’s a fixed level of wins available. Wins are paid at a constant level overall, with a premium for free agents and a discount for arb, and virtually flat for pre-arb players. Call it “the sports model”.